March 2011 Archives

March 31, 2011

ERISA-EBSA Issues Fact Sheet On The Definition of the Term "Fiduciary"

The Employee Benefits Security Administration (the "EBSA") has added to it's website a Fact Sheet on the definition, for purposes of ERISA, of the term "Fiduciary". The definition in the Fact Sheet reflects certain changes the EBSA is proposing to make to the long-standing definition of the term.

According to the Fact Sheet, ERISA defines a "fiduciary" to include (among others) anyone who gives investment advice for a fee or other compensation with respect to any moneys or other property of a plan, or has any authority or responsibility to do so. In 1975, a 5-part regulatory test for "investment advice" was issued as a regulation. This test gave a very narrow meaning to this term. Under the test, for a person to be considered a fiduciary by reason of giving investment advice, that person must: (1) make recommendations on investing in, purchasing or selling securities or other property, or give advice as to their value (2) on a regular basis (3) pursuant to a mutual understanding that the advice (4) will serve as a primary basis for investment decisions, and (5) will be individualized to the particular needs of the plan.

The Fact Sheet says, in effect, that significant changes have been made in the retirement plan world since 1975. Thus, changes to the definition of the term "fiduciary" are warranted. Under the EBSA's proposed changes, a person gives investment advice-and thereby becomes a fiduciary- if he or she:

(a) for a direct or indirect fee:
--provides the requisite type of advice:
--provides appraisals or fairness opinions about the value of securities or other property;
--makes recommendations on investing in, purchasing, holding, or selling securities; or
--makes recommendations as to the management of securities or other property, and

(b) meets one of the following conditions:
-- represents to a plan, participant or beneficiary that the person is acting as an ERISA fiduciary;
-- is already a fiduciary to the plan by virtue of having any control over the management or disposition of plan assets, or by having discretionary authority over the administration of the plan;
--is an investment adviser under the Investment Advisers Act of 1940; or
--provides the advice pursuant to an agreement or understanding that the advice may be considered in connection with investment or management decisions with respect to plan assets and will be individualized to the needs of the plan.

Notwithstanding the above, the following persons should not be treated as a fiduciary:
(i) persons who do not represent themselves to be fiduciaries, and who make it clear to the plan that they are acting for a purchaser/ seller on the opposite side of the transaction from the plan rather than providing impartial advice.
(ii) employers who provide general financial/ investment information, such as recommendations on asset allocation to 401(k) participants under existing EBSA guidance on investment education.
(iii) persons who market investment option platforms to 401(k) plan fiduciaries on a non-individualized basis and disclose in writing that they are not providing impartial advice.
(iv) appraisers who provide investment values to plans to use only for reporting their assets to the EBSA and IRS.


March 30, 2011

Employment-EEOC Announces The Issuance Of Final Regulations For The ADA Amendments Act

In a Press Release (3/24/11), the Equal Employment Opportunity Commission (the "EEOC") has announced that the final regulations implementing the ADA Amendments Act (the "ADAAA") are now available on the Federal Register website. These regulations are designed to simplify the determination of who has a "disability", and to make it easier for people to establish that they are protected by the Americans with Disabilities Act (the "ADA"). The new regulations are effective May 24, 2011 (60 days after publication).

According to the Press Release, the ADAAA went into effect on Jan. 1, 2009. In the ADAAA, Congress directed and authorized the EEOC to revise its regulations to conform to changes made by the act. The ADAAA overturned several Supreme Court decisions that Congress believed had interpreted the definition of "disability" too narrowly, resulting in a denial of protection for many individuals with impairments such as cancer, diabetes or epilepsy.

The Press Release further says that the ADAAA and the final regulations keep the ADA's definition of the term "disability" as: (1) a physical or mental impairment that substantially limits one or more major life activities, (2) a record (or past history) of such an impairment, or (3) being regarded as having a disability. However, the ADAAA made significant changes in how those terms are interpreted, and the regulations implement those changes. Based on the statutory requirements, the regulations include a list of principles to guide the determination of whether a person has a disability. For example, the principles provide that an impairment need not prevent or severely or significantly restrict performance of a major life activity to be considered a disability. Additionally, whether an impairment is a disability should be construed broadly, to the maximum extent allowable under the law. The principles also provide that, with one exception (ordinary eyeglasses or contact lenses), "mitigating measures," such as medication and assistive devices like hearing aids, must not be considered when determining whether someone has a disability. Furthermore, impairments that are episodic (such as epilepsy) or in remission (such as cancer) are disabilities if they would be substantially limiting when active.

According to the Press Release, the regulations clarify that the term "major life activities" includes "major bodily functions," such as functions of the immune system, normal cell growth, and brain, neurological, and endocrine functions. The regulations also make clear that not every impairment will constitute a disability. The regulations include examples of impairments that should always be considered as disabilities, such as HIV infection, diabetes, epilepsy, and bipolar disorder. The regulations also make it easier for individuals to establish coverage under the "regarded as" part of the "disability" definition.

March 29, 2011

Employment-Supreme Court Rules That An Oral Complaint Constitutes A Filed Complaint For Purposes of the FLSA's Antiretaliation Rule

In Kasten v. Saint-Gobain Performance Plastics Corp., No. 09-834 (S. Ct. 2011), the Petitioner, Kasten, had brought an antiretaliation suit against his former employer, respondent ("Saint-Gobain"), under the Fair Labor Standards Act of 1938 (the "FLSA"). The suit was based on a provision of the FLSA which forbids employers "to discharge ... any employee because such employee has filed any complaint" alleging a violation of the FLSA (29 U.S.C. section 215(a)(3)). In a related suit, the district court had found that Saint-Gobain violated the FLSA by placing timeclocks in a location that prevented workers from receiving credit for the time they spent donning and doffing work-related protective gear. In this suit, Kasten claims that he was discharged because he orally complained to company officials about the timeclocks. The district court granted Saint-Gobain summary judgment, concluding that the FSLA's antiretaliation provision did not cover oral complaints. The Seventh Circuit affirmed. But did Kasten's oral complaint constitute a "filed complaint" for purposes of that provision?

The Supreme Court ruled that statutory term "filed any complaint" , in the FLSA antiretaliation provision, includes oral complaints. This ruling is based on the reading of the whole statutory text, the FLSA's objective, and interpretations by the Department of Labor and the Equal Employment Opportunity Committee. Given this ruling, the Supreme Court vacated and remanded the Seventh Circuit's decision.

March 28, 2011

Employment-Sixth Circuit Rules That Plaintiffs Were Not Entitled To Receive A WARN Notice In Connection With The Employer's Cessation Of Operations

In Bledsoe v. Emery Worldwide Airlines, Inc., No. 09-4346 (6th Cir. 2011), the plaintiffs, representing a class of former employees of the defendant, Emery Worldwide Airlines, Inc. ("EWA"), filed this suit against EWA claiming violations of the Worker Adjustment and Retraining Notification Act of 1988 ("WARN Act"). The district court ruled against the plaintiffs, and they appealed. The principal issue on appeal was whether the district court erred in finding that the plaintiffs were not entitled to notice under the WARN Act, since they had no "reasonable expectation of recall" from layoff at the time that EWA permanently ceased operations.

EWA was a commercial air freight carrier. Problems developed between EWA and the Federal Aviation Administration ("FAA"). As a result of these issues, EWA's airplanes were grounded in August 2001. This caused the temporary layoff of approximately 575 EWA employees, including the plaintiffs, between August 13 and 15, 2001. Letters were sent to these employees concerning the layoffs, indicating the temporary nature. Other letters followed, increasing the expected length of the layoffs and indicating that the layoffs could be permanent. On December 4, 2001, EWA's parent corporation decided to permanently close EWA, thereby permanently ceasing operations. On December 5, 2001, the plaintiffs were notified that their layoffs were permanent, without affording them advance notice or pay in lieu thereof. Were the plaintiffs entitled to a WARN Act notice?

The Court stated that the WARN Act notice would be required if the plaintiffs were "affected employees" at the time EWA permanently ceased operations. The WARN Act defines "affected employees" as "employees who may reasonably be expected to experience an employment loss as a consequence of a proposed plant closing or mass layoff by their employer." (29 U.S.C. § 2101(a)(5)). Earlier cases have held that this term includes temporarily laid-off employees who had a "reasonable expectation of recall" at the time of the employment loss. Factors used in establishing this expectation are: (1) the past experience of the employer; (2) the employer's future plans; (3) the circumstances of the layoff; (4) the expected length of the layoff; and (5) industry practice. Factors (1) and (5) did not apply here. For factors (2), (3) and (4), the Court considered the dynamics and issues between EWA and the FAA, that EWA had told employees in the letters about the resulting unlikelihood that the issues would be resolved in a timely manner, and that the length of the layoffs increased prior to being made permanent. In particular, prior to December 4, 2001, it had became progressively more apparent to EWA and its parent company that the economics of complying with heightened FAA standards did not make sense from a business perspective, and EWA had been relaying its concerns in its letters about how this impacted the layoffs to the employees. The Court found that, by December 4, a reasonable employee under the circumstances would not have expected to be recalled.

Accordingly, the Court concluded that the plaintiffs were not entitled to a WARN Act notice, and affirmed the district court's decision.


March 26, 2011

Employee Benefits-IRS Says That Pre-Approved DC Plans Must Verify Compliance With The First Filing Cycle

In Employee Plans News (March 23, 2011), the Internal Revenue Service (the "IRS") notes that on February 1, 2011, the IRS began accepting applications for opinion or advisory letters for pre-approved defined contribution (DC) plans for the second 6-year remedial amendment cycle. However, for the IRS to consider an application for the current cycle, the sponsor/practitioner of the pre-approved DC plan must verify compliance with the first cycle in one of the following ways:

1. stating that this is the first time for which an opinion or advisory letter has ever been requested for the plan;

2. attaching the plan's most recent opinion or advisory letter based on the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") and the 2004 Cumulative List; or

3. including a satisfactory explanation of why an opinion or advisory letter for the plan was not requested during the first cycle and how the EGTRRA and 2004 Cumulative List qualification requirements were timely satisfied by employers who adopted the plan.

For example, if an M&P sponsor received an opinion letter for GUST, but did not secure a letter for EGTRRA and the 2004 Cumulative List, the IRS will not issue a letter to the plan in the current cycle, unless the sponsor satisfies the third item above. The IRS further says that, if a pre-approved DC plan sponsor/practitioner cannot satisfy one of the three conditions, he or she must correct this qualification failure under the IRS's Voluntary Correction Program before applying for an opinion or advisory letter in the current cycle.


March 25, 2011

ERISA-Georgia Court Of Appeals Rules That ERISA Does Not Preempt Claims Relating To Benefits That Have Already Been Paid Out

In Alcorn v. Appleton, A10A1954 (Ga. Court of Appeals 2011), Tiffany Marie Alcorn, as executrix of the estate of her father Richard Alcorn, and her sister, Amy Darlene Alcorn (together "the Alcorns") appeal from the Georgia superior court's grant of partial summary judgment to their father's second wife, Bonnie Ann Appleton ("Appleton"). The Alcorns assert that Appleton contractually waived her right to receive the benefits under their father's 401(k) plan and life insurance plan in a settlement agreement incorporated into an order of separate maintenance entered into before their father's death. The trial court had ruled that the Alcorns' assertion is precluded, because that waiver was not ERISA compliant. The Ga. Court of Appeals reversed this ruling.

In this case, Richard Alcorn and Appleton had entered into a settlement agreement on July 7, 2007. It provided, in pertinent part : "Each party shall have the right to name any person or organization they choose as beneficiary of their life insurance policies. Each party waives any interest they have in the other party's life insurance proceeds, cash value, or otherwise. The parties agree to waive and release any rights or claims they may now have to any retirement pay, benefits, or privileges earned by the other during the marriage. " This settlement agreement was incorporated into an Order of Separate Maintenance on September 25, 2007. Richard Alcorn died on April 11, 2008. He had been a participant in a 401(k) plan and a life insurance plan, both subject to ERISA. Richard had not designated a beneficiary for his benefit from the 401(k) plan, and he had designated Appleton as the beneficiary of his benefit from the life insurance plan. Subsequently, the benefits under both of those plans were paid to Appleton, in accordance with the Supreme Court's decision in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan et. al, 129 S. Ct. 865 (2009).

After the benefits from the 401(k) and life insurance plans had been paid to Appleton , the Alcorns filed suit against her for, among other matters, breach of contract (the settlement agreement). The Alcorns claimed that Appleton had breached the settlement agreement by accepting the benefits, and refusing to sign a waiver of her rights to those benefits despite repeated requests to do so. On appeal, the Alcorns asserted that Kennedy does not apply after the benefits have been distributed from the plans (an issue the Kennedy court declined to decide). The Court agreed with the Alcorns, and reversed the trial court's partial grant of summary judgment in favor of Appleton. The Court said that this result is consistent with Georgia decisions concluding that ERISA does not preempt claims against funds already distributed from an ERISA plan.

Note: Presumably, this ruling by the Georgia Court of Appeals means that, depending on applicable state law, Appleton's waiver of her right to the benefits could be enforced against her.

March 24, 2011

ERISA-Tenth Circuit Upholds A Deadline In An SPD On The Time For Filing A Claim For Disability Benefits

In Young v. United Parcel Services, Inc., No. 10-4156 (10th Cir. 2011), the plaintiff, Deanne Young ("Young"), was appealing the district court's dismissal of her claim under ERISA for short-term disability benefits. This dismissal was based on a provision, found in the summary plan description (the "SPD") for the United Parcel Service Inc. Flexible Benefits Plan (the "Plan"), which imposed a deadline on the time for filing a lawsuit. The Tenth Circuit Court upheld this provision and affirmed the district court's dismissal of Young's claim.

Young had applied for and received short-term disability ("STD") benefits under the Plan, beginning on December 17, 2007. AETNA Life Insurance Company ("Aetna") is the claims administrator under the Plan for STD claims. On March 20, 2008, AETNA sent Young a letter stating that it had not received medical information supporting a disability beyond March 11, 2008. Young's STD benefits therefore terminated after that date. AETNA's letter indicated that Young could appeal its determination by filing a written request within 180 days. Young filed a first-level appeal, which was denied by AETNA on May 12, 2008, in a letter informing her that she had 60 days to file a further appeal. Young's second-level appeal was denied by the UPS Claims Review Committee ("the Committee") on October 17, 2008. The Committee's letter informed her that she might have a right to sue under ERISA, but it did not indicate any deadline for filing suit. Young filed this action almost a year later, on September 8, 2009. But was this action barred by the provision in the SPD which imposed a deadline on the time for bringing suit?

The SPD stated that any legal action to receive Plan benefits must be filed by the earlier of:
• six months from the date a determination is made under the Plan, or
• three years from the date the service or treatment was provided or the date the claim arose, whichever is earlier.

The SPD further stated that the failure to file suit within this time limit results in the loss/waiver of the right to file suit. Under this provision, Young's time to file her action expired on April 17, 2009, six months after the date of the Committee's letter denying her second-level appeal.

In analyzing the case, the Court said that, since ERISA does not contain a statute of limitations for private enforcement actions, courts generally apply the most closely analogous statute of limitations under state law. However, parties to an ERISA plan are free to include a reasonable contractual limitation in the plan on the period for bringing an action. In this case, the Plan specifically incorporated the SPD, and stated that, if the terms of the Plan and the SPD conflict, the SPD shall govern. Thus, the language in the SPD does not improperly amend the Plan. The provision containing the deadline for bringing suit is not ambiguous and was put in an appropriate place in the SPD. Since the SPD states only that notice will be provided regarding the time limits applicable to the appeal procedures, the Committee did not breach any duty by failing to include the deadline for filing suit in the second-level denial letter. Implicitly, the Court did not find anything unreasonable about the deadline established by the SPD. As such, the Court upheld the deadline.


March 23, 2011

Employment-Ninth Circuit Rules That Jury Was Given Improper Instruction On FMLA Claim

In Sanders v. City of Newport, Nos. 08-35996, 09-35119, 09-35196 ( 9th Cir. 2011), the plaintiff, Diane Sanders ("Sanders"), was a former employee of the City of Newport ("the City"). Sanders sued the City when it refused to reinstate her, and ultimately fired her, after she took an approved medical leave. In her complaint, Sanders alleged that, among other things, the City had interfered with her rights under the Family and Medical Leave Act of 1993 ("FMLA"). At trial, a jury decided against Sanders on this point. Sander's appealed, claiming that the district court improperly instructed the jury on the elements of her FMLA interference claim. The Ninth Circuit Court agreed with Sanders on this point. Accordingly, the Court remanded the case back to the district court for a new trial.

After some debate among the district court, Sanders and the City, the district court had instructed the jury to consider whether the plaintiff had proven by a preponderance of the evidence that the City, without reasonable cause, failed to reinstate her after she took an FMLA leave. The Ninth Circuit Court said that this instruction placed the burden of proof on Sanders to establish that the City had no reasonable cause for failing to reinstate her. There are two errors. First, under FMLA, an employee generally has the right to reinstatement after the FMLA leave ends. FMLA regulations (for example, see 29 C.F.R. § 825.214(a) and (b), 825.216(a) and 825.312(d) ) indicate that the burden is on the employer to show that he had a legitimate reason to deny reinstatement to an employee. Thus, it was erroneous for the district court's instruction to put the burden of proof on Sanders. Second, the FMLA and its regulations do not allow an employer to interfere with an employee's right to reinstatement for "reasonable cause." (for example, see 29 U.S.C. § 2614(a)(3) and 29 C.F .R. § 825.216). Consequently, it was erroneous for the district court's instruction to require Sanders to prove that the City did not have reasonable cause for not reinstating her.

March 22, 2011

ERISA-Seventh Circuit Rules That Injunctive Relief, But Not Monetary Relief, Is Available For A Breach Of A Fiduciary Duty Claim

In Smith v. Medical Benefit Administrators Group, Inc., No. 09-3865 (7th Cir. 2011), the plaintiff, Jeffrey L. Smith ("Smith"), sued Medical Benefits Administrators Group, Inc. (doing business as "Auxiant"), the claims administrator for his workplace health insurance plan (the "Plan"). Smith contended that Auxiant breached its fiduciary obligations to Smith under ERISA when it preauthorized his gastric bypass surgery, and then turned around and denied his claim for benefits after the surgery took place, saying that it was excluded from coverage under the terms of the Plan. He further alleged that Auxiant routinely preauthorized medical treatment, without first ascertaining whether that treatment is covered by the Plan, and without warning the insured that coverage might be denied notwithstanding the preauthorization. Smith sought both monetary and injunctive relief under ERISA. The district court dismissed Smith's complaint , and Smith appealed. The issue for the Seventh Circuit: is monetary and/or injunctive relief available under ERISA for this complaint?

The Court said that Auxiant's preauthorization of medical treatment, without first ascertaining whether that treatment is actually covered by the Plan or warning the insured that the treatment might not be covered, could be treated as misleading the insured to his detriment. Thus, Smith's complaint articulates a viable theory of breach of fiduciary duty under ERISA. But what relief is available?

The Court further said that Section 502 of ERISA contains three provisions that are potentially relevant here. First, section 502(a)(1)(B) permits a plan participant to recover benefits due him under the plan. But Smith concedes that the Plan's terms exclude his gastric bypass surgery from coverage, so this section does not help him. Second, section 502(a)(2) of ERISA permits a plan participant to seek appropriate relief pursuant to section 409 of ERISA. In turn, Section 409 deems a fiduciary personally liable for any losses to the plan resulting from a breach of duty, plus such other equitable or remedial relief as the court may deem appropriate. However, the relief under section 502(a)(2) must inure to the benefit of the plan as a whole. This is not the type of relief that Smith seeks, since he want to redress his own injuries. The final provision is section 502(a)(3), which authorizes a plan participant to file suit to: (A) enjoin any act or practice which violates ERISA or the Plan's terms, or (B) obtain other appropriate equitable relief to redress such violations or enforce ERISA or the Plan's terms. The relief provided by that section is limited to injunctive or other appropriate equitable relief.

As such, the Court concluded that Smith cannot obtain monetary relief under those three provisions, or otherwise under ERISA, since that type of relief is a legal remedy. Restitution for being required to pay the medical bills for his gastric bypass surgery could be deemed an equitable remedy, in appropriate circumstances, such as when the fiduciary is wrongfully holding money that belongs to Smith. But none of those circumstances are present here. Still, the Court continued, section 502(a)(3) authorizes an award of declaratory and injunctive relief under ERISA. Smith could be entitled to this type of relief. But the determination of that entitlement must be made by the district court. Accordingly, the Court remanded the case with the instruction for the district court to make this determination.

Note: The types of injunctive relief the Court had in mind appear to relate to Auxiant's future behavior, so it is not clear how the injunctive relief might help Smith solve his current problem of paying the medical bills for the surgery he already had. Also, the Court hints that, although not raised in this case, the Plan might have ways to bind Auxiant and the Plan to any advice Auxiant gives as to Plan coverage, so that the Plan will be required to honor that coverage.


March 21, 2011

Employee Benefits-EBSA Extends Non-Enforcement Period For Affordable Care Act Interim Regulations Pertaining to Internal Claims And Appeals Under Group Health Care Plans

In Technical Release No. 2011-01, the Employee Benefits Security Administration (the "EBSA") stated that it is extending the non-enforcement period for the interim regulations, issued in 2010 under the Affordable Care Act (the "2010 interim regulations"), which govern internal claims and appeals under group health plans. Those interim regulations were issued on July 23, 2010 (at 75 FR 43330).

By way of background, the Affordable Care Act generally requires that non-grandfathered group health plans have an effective internal claims and appeals process. This process must initially incorporate the rules of 29 CFR 2560.503-1, and then must be updated in accordance with standards established by the EBSA. The 2010 interim final regulations contain the following such standards:

1. The scope of adverse benefit determinations eligible for internal claims and appeals includes a rescission of coverage.

2. A plan must notify a claimant of a benefit determination, with respect to a claim involving urgent care, as soon as possible but not later than 24 hours after the plan's receipt of the claim.

3. A plan is required to provide the claimant with: (a) new or additional evidence considered, relied upon, or generated by the plan in connection with the claim, (b) new or additional rationale for a denial at the internal appeals stage, and (c) a reasonable opportunity for the claimant to respond to such new evidence or rationale.

4. A claims decider or medical specialist cannot have a conflict of interest that will encourage him to deny the claim.

5. Notices must be provided in a culturally and linguistically appropriate manner.

6. Notices must include additional information, such as: (a) information sufficient to identify the claim involved, (b) a discussion of the reason for a claim denial, and (c) a description of available internal appeals and external review processes, including how to initiate an appeal.

7. If a plan fails to strictly adhere to all the requirements of the 2010 interim final regulations, the claimant is deemed to have exhausted the plan's internal claims and appeals process, and the claimant may initiate any available external review process or remedies available under ERISA or State law.

Initially, the above standards generally became effective on the first day of the first plan years starting after September 23, 2010. However, on September 20, 2010, the EBSA issued Technical Release 2010-02, which contained an enforcement grace period, until July 1, 2011, with respect to standards 2, 5, 6 and 7 above.

Technical Release No. 2011-01 now extends the enforcement grace period described above, until plan years beginning after 2011, for standards 2,5, and 7. During the grace period, neither the Department of Labor nor the Internal Revenue Service will take any enforcement action against a group health plan for failing to comply with those standards. The enforcement grace period is similarly extended for standard 6, but different dates and rules apply.

March 18, 2011

ERISA-Tenth Circuit Upholds Metlife's Decisions To Not Increase Disability Benefits, Even Though They Were Calculated Incorrectly, And Then To Terminate the Benefits Altogether

In Palmer v. Metropolitan Life Insurance Company, No. 10-3171 (10th Cir. 2011), the plaintiff, Michael Palmer ("Palmer"), brought suit under ERISA against Metropolitan Life Insurance Company ("MetLife") for underpaying and later terminating his disability benefits under the Alltel Corporation Long-Term Disability Plan (the "Plan"). The district court granted summary judgment for MetLife, and Palmer appealed.

Palmer's last work day with his employer, Alltel, was February 2, 2006. The next day, he underwent a total disc replacement. On July 11, 2006, he submitted a claim for long-term disability benefits to MetLife, the administrator of the Plan, alleging disability due to lower-back problems. MetLife approved Palmer's claim for disability benefits by letter dated October 12, 2006. The approval letter said that the benefits became payable as of August 2, 2006, after his satisfaction of a 180-day waiting period. In February of 2008, Palmer told Metlife that his benefit payments should be higher, since they should be based on salary and commission, while Metlife was omitting the commission from its calculation. Metlife did not increase the benefit payments. Further, Metlife then obtained from Palmer (voluntarily) the notes of Palmer's own physician, for the period of April 1, 2005 through June 30, 2005. The notes indicated that the physician had seen Palmer during that period. After reviewing these notes, MetLife terminated Palmer's disability benefits, effective March 1, 2008, on the grounds that he had a preexisting condition. Palmer then filed this suit. Was Metlife's decisions to not increase and then terminate the disability benefits correct?

Since the Plan granted discretionary authority to Metlife, the Court said that Metlife's decisions are entitled to a deferential review. The Court noted that Palmer conceded that the Plan has a preexisting condition exclusion which applies to him, and Metlife conceded that the disability benefit payments it made (before the termination ) were not calculated properly. The Court said that the issues were: (1) whether MetLife could, after previously approving and paying benefits, terminate them (a) based on a finding of a pre-existing condition and (b) discovered through records obtained from Palmer (again, voluntarily) that were in existence at the time it initially awarded benefits but not obtained by MetLife at that point; and (2) whether MetLife was required to compensate Palmer for an underpayment that occurred during the time it was mistakenly paying benefits. The Court found that ERISA and case law required a "yes" answer to (1)(a) and (b). Further, as to (2), since Palmer is not entitled to any benefits due to the preexisting condition, he is not entitled to any adjustment in the benefit payments already made.

As such, the Court concluded that Metlife's decision to not increase and then terminate Palmer's disability benefits should be upheld, and it affirmed the district court's ruling.

March 17, 2011

ERISA-Ninth Circuit Upholds Claim For Disability Benefits, Retroactive To 1974

In Shore v. International Painters and Allied Trades Industry Pension Plan, Nos. 10-15365, 10-15437 (9th Cir. 2011) (Unpublished Memorandum), the plaintiff brought suit under ERISA for disability benefits, retroactive to 1974, against Allied Trades Industry Pension Plan (the "Plan"). The district court granted summary judgment to the plaintiff, and the Plan appealed.

The plaintiff had worked for employers who contributed to the Plan, until he suffered an on-the-job injury. Due to the injury, the plaintiff became permanently and totally disabled on March 15, 1974, as later determined by the Social Security Administration ("SSA") in awarding him disability benefits. The plaintiff applied for a disability pension from the Plan in 2003. The Plan denied his application, concluding: (1) his pension credits under the Plan had never vested and were thus nullified by his break in service as of 1977 and (2) his failure to apply for a disability pension within twelve months of receiving the SSA disability award disqualified him.

In analyzing the case, the Court noted that the Plan did not grant discretionary authority to the plan administrator, so the Plan's denial of the disability pension is reviewed de novo. The Court then said that, once the SSA deemed the plaintiff to be eligible for Social Security disability benefits, which it did as of 1974, he satisfied all of the eligibility requirements for a disability pension under the Plan (i.e., he was permanently and totally disabled, and he had sufficient pension and future service credits). The Plan does not condition entitlement to a disability pension on advance application. Thus, by its terms, the Plan entitles the plaintiff to a disability pension retroactive to his disability onset date of March 15, 1974. The application for benefits is merely a procedural requirement to initiate payment of the benefits, rather than a condition of entitlement. The Court concluded that the plaintiff's failure to apply for the benefits until 2003 cannot destroy his entitlement to them. Also, the Court said that the Plan's break-in-service provisions do not apply to a worker-like the plaintiff- who has satisfied all pension eligibility requirements and is already entitled to retire. Thus, the plaintiff's pension credits were not nullified.
As such, the Court affirmed the district court's ruling, upholding the grant of the disability pension retroactive to 1974.

Note: With respect to the application for benefits being merely a procedural requirement, the Court hinted that a plan might be able to condition entitlement to the benefits on making an advance application, if the plan contains appropriate language.

March 16, 2011

Employee Benefits -IRS Reminds Us That Voluntary Correction Program Fee Discount for Non-amenders Of Pre-Approved Plans Ends May 2

For many plan sponsors using a pre-approved 401(k), profit-sharing, money purchase or other defined contribution plan document, the deadline for adopting an EGTRRA plan was April 30, 2010. If the plan sponsor failed to adopt an EGTRRA plan by that date, the sponsor may correct this failure under the IRS's Voluntary Correction Program ("VCP").

The IRS's Employee Plans News, dated February 11, 2011, reminds us that, if the plan sponsor files an application under the VCP to correct the non-adoption failure by May 2, 2011, a discounted filing fee may be available.

For example:

A discounted fee of $375 (half the usual fee) applies to a plan sponsor who:
• files a VCP application on or before May 2, 2011 (postmarked within one year of the missed deadline);
• has 20 or fewer participants in their plan; and
• had no other plan qualification failures.

The VCP fee for these plans will be $750 after May 2.

March 15, 2011

ERISA-Seventh Circuit Rules That Employer Is Required To Make Contributions To A Pension Plan, Despite Oral Agreements To The Contrary

In Central States, Southeast And Southwest Areas Pension Fund v. Auffenberg Ford, Inc., No. 09-2964 (7th Circuit 2011), the plaintiff and its trustee (together the "Fund") filed suit against the defendant, Auffenberg Ford, Inc. ("Auffenberg") under ERISA, in order to collect unpaid contributions to the Fund. The Fund is a multiemployer pension plan. The district court granted summary judgment in the Fund's favor, and Auffenberg appealed. The Seventh Circuit Court found that the terms of the collective bargaining agreement (the "CBA") between the parties required Auffenberg to make the contributions in question to the Fund, despite oral agreements to the contrary. It therefore affirmed the district court's decision.

In this case, when negotiating a CBA in 2001, John Green, a union official, orally agreed that Auffenberg's obligation to contribute to the Fund would end when the CBA expired in five years (in 2006). But this condition was not memorialized in the CBA. Rather, the CBA contained an "evergreen clause", under which all the terms and provisions of the CBA would remain in effect until a new CBA was negotiated, or until negotiations were terminated. Later, another union official, Scott Alexander, orally agreed that Auffenberg could stop making contributions to the Fund as of April 30, 2006, the day the CBA expired. After some correspondence, in which the Fund was given written notice of this oral agreement, it was agreed that Auffenberg's obligations to make contributions to the Fund ceased at the end of February 10, 2007. But the Fund brought suit against Auffenberg for contributions for the period starting after April 30, 2006 and ending before the cessation date.

In analyzing this case, the Court said the issue is whether an oral agreement between Auffenberg and a union official to end Auffenberg's contractual obligation to contribute to the Fund is enforceable, as long as written notice of this oral agreement is given to the Fund. The Court concluded that this agreement is not enforceable. Under ERISA, the terms of an employee benefit plan must be "established and maintained pursuant to a written instrument." 29 U.S.C. § 1102(a)(1). Also, the Labor Management Relations Act (the "LMRA") has a similar requirement. Here, the written "evergreen clause" in the 2001 CBA required Auffenberg to continue making contributions to the Fund after the CBA expired and until such time as the parties either entered into a new agreement or terminated negotiations. The LMRA and ERISA prevent a court from giving force to oral understandings between a union and employer that contradict the writings. This obtains even when written notice of the oral agreement is given to the union or its plan.


March 14, 2011

ERISA-Eighth Circuit Overturns Plan Administrator's Limit On Benefit Payments Due To Abuse of Discretion

In Wrenn v. Principal Life Insurance Company, No. 09-3658 (8th Cir. 2011), the plaintiff filed suit under ERISA against defendants, Principal Life Insurance Company and Principal Financial Group, Inc. (collectively "Principal"), for the failure to pay certain medical benefits. The district court upheld Principal's decision to not pay the benefits, and the plaintiff appealed.

In this case, the plaintiff's child had been hospitalized for malnutrition. The child was covered under a group health insurance policy, which was subject to ERISA (the "Policy"). Principal was both the insurer and the claims administrator for the Policy. The Policy limited the benefits available for "Mental Health, Behavioral, Alcohol or Drug Abuse Treatment Services" to not more than 10 days per year. Further, it provided that, in the event the covered individual receives treatment for more than one condition, benefits will be paid based on the "primary focus" of the treatment, as determined by Principal. Looking at these provisions, Principal determined that the "primary focus" of the plaintiff's child's hospitalization was mental health treatment, and therefore paid benefits for only 10 days of hospitalization for each of 2006 and 2007. Hospital charges totaling $44,260.63 remained unpaid. Was Principal correct in applying the 10 day limit?

The Court determined that, even applying a deferential review, Principal was not correct in applying this limit. The test, under a deferential review, is whether Principal's application is supported by substantial evidence. Thus, in order for Principal to reasonably deny payment of the hospital charges, substantial evidence had to support its determination that the primary focus of the hospitalization was mental health treatment, i.e., treatment designed to alter the child's behavior. The record contained evidence that the child's malnutrition, a physical condition, was the reason for her admission to the hospital, and that the treatment and concern about her by the doctors centered on her physical health. The record contained no evidence that the hospitalization, or the discharge therefrom, was related to the child's mental health.

Accordingly, the Court concluded there was not enough evidence to support the determination that the primary focus of the hospitalization was mental health treatment. As such, the 10 day limit did not apply. The Court reversed Principal's and the district court's decision, and remanded the case with directions to enter judgment in the plaintiff's favor.

March 11, 2011

ERISA-Fifth Circuit Determines That ERISA Preempts State Law Claim That Participant Was Not Married

In Blake v. Metropolitan Life Insurance Company, No. 10-40736 (Fifth Circuit 2011), the Court faced the issue of whether ERISA preempts a state law claim that a plan participant was not married.

In this case, the plaintiffs' father was covered under a life and accident plan at work (the "Plan"). The Plan was subject to ERISA, and its benefits were insured by the defendant, Metropolitan Life Insurance Company ("Metropolitan"). When the plaintiff's father died, a death benefit became payable under the Plan. But to whom? The Plan provided that the death benefit would be paid to the covered individual's spouse, or if none, to his children. At the time of his death, the father was residing with a woman that he had earlier divorced. Metropolitan determined that the father and this woman were married, and paid the death benefit to the woman. The plaintiff's then filed this suit, seeking a declaration that under state law, the father and this woman were not married at the time the father died.

The Court concluded that the plaintiff's state law claim is preempted by ERISA. This obtains because the determination of marital status did not arise from any matter which is separate from the determination of who is entitled to the death benefit under the Plan, and this suit could have been brought under § 502(a) of ERISA to collect that benefit.


March 10, 2011

ERISA- Ninth Circuit Rules That Denial Of Long-Term Disability Benefits by Plan Administrator Is An Abuse of Discretion

In Salomaa v. Honda Long Term Disability Plan, No. 08-55426 (9th Cir. 2011), the plaintiff suffered from chronic fatigue syndrome and fibromyalgia. He applied for long-term disability benefits ("LTD benefits") under his employer's plan ( the "Plan"). His claim was denied by the plan administrator, which was CIGNA Group Insurance ("CIGNA"). After exhausting the appeals process, the plaintiff brought this suit under ERISA. The District Court upheld CIGNA's denial and the plaintiff appealed.

In analyzing this case, the Court said that, since the Plan unambiguously granted CIGNA the discretion to decide Plan eligibility, the Court would review CIGNA's decision to deny the LTD benefits under the abuse of discretion standard. Here, CIGNA has a conflict of interest, since it acts as both funding source and administrator. This conflict must be weighed as a factor in determining whether there has been an abuse of discretion. Further, in the ERISA context, the test for abuse of discretion is whether CIGNA's decision is: (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record.

Under this test, the Court concluded that CIGNA had abused its discretion in denying the LTD benefits because: (1) every doctor who personally examined the plaintiff concluded that he was disabled, while the CIGNA declined to examine the plaintiff; (2) CIGNA demanded objective tests to establish the existence of a condition for which there are no objective tests; (3) CIGNA failed to consider that the plaintiff was awarded disability benefits by Social Security; (4) the reasons for CIGNA's denial shifted as they were refuted, those reasons were largely unsupported by the medical file, and only the denial stayed constant; and (5) CIGNA failed to engage in any meaningful dialogue with the plaintiff, in that CIGNA did not give the plaintiff access to the two medical reports of its own physicians upon which it relied, and otherwise failed to clearly tell the plaintiff what information he had to provide to perfect his claim. The Court noted that CIGNA's abuse of discretion is highlighted because it had a conflict of interest.

Due to the abuse of discretion, the Court overturned the District Court's decision and remanded the case back with the instruction to award plaintiff his LTD benefits.

March 3, 2011

Employee Benefits-IRS Provides Guidance On Definition Of Readily Tradable On An Established Securities Market

In Notice 2011-19 (the "Notice"), the Internal Revenue Service (the "IRS") provides guidance as to when the securities of an employer are "readily tradable on an established securities market" or "readily tradable on an established market" for purposes of the Internal Revenue Code (the "Code"). The following Code sections and Treasury regulations pertaining to employee benefits use or refer to one of those phrases: section 401(a)(22), section 401(a)(28)(C), section 409(h)(1)(B), section 409(l) and section 1042(c)(1)(A); Treas. Reg. Sec. 1.401(a)(35)-1(f)(5).

Under the Notice, the terms "readily tradable on an established securities market" and "readily tradable on an established market", with respect to employer securities, mean employer securities that are readily tradable on an established securities market under Treas. Reg. Sec. 1.401(a)(35)-1(f)(5). Under that regulation, a security is so tradable if it is traded:

--on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934(prong 1); or

--on a foreign national securities exchange that is officially recognized, sanctioned or supervised by a governmental authority, if the security is deemed by the Security Exchange Commission (the "SEC") as having a ready market under SEC Rule 15c3-1(such as a security included on the FTSE Group All-World Index) (prong 2).

The Notice is generally effective for plan years beginning after 2011. However, it does not apply until plan years beginning after 2012 when, as of March 14, 2011, the employer (and each of its controlled group member) has no common stock traded as described in prong 1, but has common stock traded as described in prong 2.

March 2, 2011

ERISA-Fifth Circuit Rules That Suit For Long-Term Disability Benefits Was Filed Too Late

In White v. Metropolitan Life Insurance Company, No. 10-30707 (5th Cir. 2011), the plaintiff had brought suit under ERISA challenging the decision of the defendant, Metropolitan Life Insurance Company ("Metropolitan"), to deny her claim for long-term disability benefits, under the terms of a plan subject to ERISA (the "Plan"). The district court granted summary judgment in favor of Metropolitan. One issue on appeal-did the plaintiff initially file her suit on a timely basis? Here is what the Fifth Circuit Court said.

The terms of the Plan provide that no legal action may be filed "more than three years after proof of Disability must be filed. This will not apply if the law in the area where you live allows a longer period of time to file proof of Disability." In this case, the plaintiff's suit was not filed within this time period, and the plaintiff does not identify any local law (here Louisiana) which allows a longer period of time for filing proof of disability. Therefore, Court concluded that the plaintiff's suit was filed too late. The Court cited Harris Methodist Fort Worth v. Sales Support Servs., Inc. Empl. Health Care Plan, 426 F.3d 330, 337 (5th Cir. 2005). In that case, the court said that, because ERISA provides no specific limitations period as to when a suit under ERISA must be filed, we apply state law principles of limitation. Where a plan designates a reasonable, shorter time period, however, that lesser limitations schedule governs.